Arbitration procedures and practice in Malaysia: overview
A Q&A guide to arbitration in Malaysia.
The Q&A guide provides a structured overview of the key practical issues including, for example, any mandatory provisions and default rules applicable under local law, confidentiality, local courts' willingness to assist arbitration, enforcement of awards and the available remedies, both final and interim.
For a full list of jurisdictional Q&As visit www.practicallaw.com/arbitration-mjg.
Arbitration in Malaysia is considered as the main alternative to litigation for the commercial sector, particularly the construction industry. It has also become a common practice to incorporate an arbitration clause into commercial contracts. The trend appears to be that the parties tend to choose arbitration as their preferred choice of dispute resolution forum.
The general advantages of arbitration proceedings compared to court litigation are as follows:
The parties' ability to choose their decision-maker, which is particularly important if the dispute is of a technical nature.
Arbitration is generally more efficient and flexible.
The private and confidential nature of arbitration hearings and meetings, which the media and members of the public cannot attend. Final decisions are not published, nor are they directly accessible.
Malaysia is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, which means that arbitral awards rendered in Malaysia are enforceable in countries that are also signatories to this Convention.
Malaysia is home to the Kuala Lumpur Regional Centre for Arbitration (KLRCA), which is internationally recognised as an experienced, neutral, efficient and reliable dispute resolution service provider.
While the courts have adopted fast track process for dealing with cases, thereby becoming more efficient and quicker, arbitration has an edge over court proceedings, particularly in relation to large commercial matters involving complex issues which are technical in nature, given the panel of experienced domestic and international arbitrators from diverse fields of expertise at the KLRCA.
Although court proceedings may not be as costly as arbitration proceedings, the costs of arbitration proceedings at the KLRCA are lower than the costs of other established arbitral institutions.
There are no national arbitration centres in Malaysia. The KLRCA (www.klrca.org.my) is often chosen by the parties in their arbitration agreement as the organisation to assist in the selection of the arbitral tribunal in the event of dispute. The KLRCA was established in 1978 to provide a forum for settlement by arbitration of disputes concerning trade, commerce and investment in the Asia-Pacific region.
The 2005 Act applies to arbitration. It effectively repealed the old and outdated Arbitration Act 1952 which had been based almost word for word on the old English Arbitration Act 1950. The 2005 Act is closely modelled on the UNCITRAL Model Law. However, some provisions have been added into the 2005 Act which are different from the Model Law.
Subject to certain textual variations, Part II of the 2005 Act, which contains sections 6 to 39, closely follows the subject headings and sequence of sections 3 to 36 of the Model Law.
Part III and Part IV, however, contain sections that are not found in the Model Law. Part III only applies to international arbitration if the parties choose so, while Part IV is mandatory and applies to all arbitrations seated in Malaysia.
The Arbitration (Amendment) Act 2011 came into force on 1 July 2011. The amendments were made to minimise ambiguity and confusion relating to the provisions in the 2005 Act. There are no changes made to the structure of the 2005 Act.
Unless provided otherwise, all references to the legislation in this chapter are to the 2005 Act.
Under the 2005 Act, there are no specific references to mandatory or non-mandatory provisions. There are a number of provisions that contain terms such as "unless the parties otherwise agree" or "the parties are free to agree", which is in line with the party autonomy principle, which the 2005 Act seeks to promote. These provisions enable the parties to freely agree on their own way of conducting an arbitration without being restricted by the 2005 Act. However, the provisions under the 2005 Act that do not state that the parties have a right to agree otherwise, can be deemed to be mandatory. For example, section 36 provides that an arbitral award is final and binding.
Although the 2005 Act itself does not contain any provision on limitation periods, section 30(1) of the Malaysian Limitation Act 1953 (Limitation Act) provides that the Limitation Act and any other written law relating to the limitation of actions apply to arbitration. However, the Limitation Act only applies in West Malaysia. The general length of the limitation period is six years from the date on which the cause of action accrued (section 6(1), Limitation Act).
The court generally recognises the choice of governing law in a contract, including in relation to limitation periods, unless adopting a foreign law would go against Malaysian public policy.
What substantive and/or formal requirements must be satisfied?
Is a separate arbitration agreement required or is a clause in the main contract sufficient?
An arbitration agreement must be in writing (section 9(3)). It is deemed to be in writing where it is contained in:
A document signed by the parties (section 9(4)).
An exchange of letters, telex, facsimile or other means of communication which provide a record of the agreement (section 9(4)(b)).
An exchange of a statement of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other (section 9(4)(c)).
In addition, an arbitration agreement is valid only if it relates to an existing dispute, and it will be incomplete until the appointment of an arbitrator.
An arbitration agreement can be in the form of an arbitration clause in an agreement or in the form of a separate agreement (section 9(2)). A reference in an agreement to a document containing an arbitration clause should also be sufficient, provided that the agreement is in writing and the reference was such as to make that clause part of the agreement (section 9(5)).
Under Malaysian law an arbitral tribunal cannot assume jurisdiction over parties who are not signatories to an agreement to arbitrate. There is no other source for the arbitral tribunal's jurisdiction except for an arbitration agreement entered into by consenting parties.
An arbitral award is generally only effective as against the parties to arbitration and persons claiming through or under them. There is no precedent for holding that a third party is bound by an arbitration award. However, English authorities, which are persuasive in the Malaysian jurisdiction, suggest that the exception to this general rule applies where third parties agree to be bound by the award, either through acquiescence or ratification. This may occur in situations where the contractual context gives rise to third party rights.
The composition of the arbitral tribunal is governed either by the arbitration agreement or the 2005 Act. Under the 2005 Act, parties are given wide autonomy in selecting arbitrators. The parties can freely determine the number of arbitrators (section 12(1)) and the appointment procedure (section 13(2)). Failing an agreement or a specification between the parties on the number of arbitrators and the appointment procedure, the 2005 Act provides default rules. For example, where the parties fail to determine the number of arbitrators, the number is (section 12(2)):
Three for international arbitrations.
One for domestic arbitrations.
The 2005 Act does not impose limits on who can be appointed as an arbitrator. The parties are free to choose their arbitral tribunal. Parties can appoint as arbitrator a person of any nationality, as no person can be precluded from acting as arbitrator by reason of his nationality unless the arbitration agreement specifies otherwise.
A prospective arbitrator must disclose all facts which may raise justifiable doubts about his impartiality or independence to all the parties of the arbitration (section 14(1)). This obligation continues throughout the arbitral proceedings (section 14(2)). If doubts in relation to the arbitrator's impartiality or independence arise during the arbitral proceedings, the arbitrator must immediately disclose them in writing. Failure to do so may invalidate his appointment as an arbitrator and the arbitral proceeding itself. The resulting award may also be held to be invalid and set aside (see Question 24).
Article 9 of the UNCITRAL Rules also requires a prospective arbitrator to disclose circumstances likely to give rise to justifiable doubts as to his impartiality or his independence.
Section 13 of the 2005 Act provides default rules in relation to the appointment of arbitrators. If the parties fail to agree on the appointment procedure, the following applies:
Where the arbitral tribunal consists of three arbitrators, each party appoints one arbitrator, and both arbitrators appoint a third arbitrator (section 13(3)). If a party fails to appoint an arbitrator within 30 days of receiving a request in writing to do so from the other party, or the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment or an extended period agreed by the parties, either party can apply to the Director of the KLRCA to make an appointment.
Where the arbitral tribunal consist of one arbitrator and the parties fail to agree on the appointment, either party can apply to the Director of the KLRCA to make an appointment (section 13(5)).
Section 15 of the 2005 Act sets out the procedure for challenging the appointment of an arbitrator before the arbitral tribunal. If the challenging party is unsuccessful, it can appeal to the High Court as a last resort to challenge the appointment without waiting for the award to be made. Arbitrator's legal or physical inability to perform his functions are grounds for revoking his authority (section 16).
The 2005 Act refers to the termination of arbitrator's mandate, rather than the removal of arbitrator. Unless otherwise agreed by the parties, a substitute arbitrator must be appointed where a member of the arbitral tribunal loses his mandate or has his mandate terminated in any other manner (section 17(1)). Section 17(2) regulates the arbitral proceedings where the arbitral tribunal has been reconstituted.
The parties enjoy the utmost freedom to choose the procedural rules to be applied by the arbitral tribunal, subject to the overriding principle of fairness (section 2(1)). The procedural rules can be ad hoc or institutional. If parties fail to determine the procedural rules, the arbitral tribunal can conduct the proceedings in the manner it considers appropriate (section 21(2)). The arbitrators must, however, observe the rules of natural justice in conducting arbitrations.
The powers conferred on the arbitral tribunal include the power to (section 21(3)):
Determine the admissibility, relevance, materiality and weight of any evidence.
Order the provision of further particulars in a statement of claim or a statement of defence.
Order security for costs.
Order the discovery and production of documents or materials in the possession or under the control of a party.
The arbitral tribunal can decide which documents or classes of documents must be disclosed, and at what stage. The tribunal has no authority to order third party disclosure, as it is limited to orders directed at parties to the arbitration. However, the arbitral tribunal may draw an adverse inference in respect of a witness who refuses to produce a relevant document.
The arbitral tribunal has no power to enforce procedural decisions relating to the taking of evidence, which can range from the calling of a witness to the production of documents under the mutual discovery process. The arbitral tribunal cannot compel attendance of a witness even if that witness is under the control of one of the parties. However, the arbitrator may draw adverse inference against the party under whose control the witness is.
The arbitral tribunal can appoint one or more experts to report to it on specific issues or require a party to give the expert any relevant information (section 28).
Disclosure of documents, like the other aspects of an arbitration, depend on the parties' agreement and the power given to the arbitral tribunal. The 2005 Act empowers the arbitral tribunal to decide on the disclosure of documents (section 21(3)(e)). In practice, the arbitral tribunal can decide which documents or classes of documents should be disclosed and at what stage (Kirkawa Corp v Gatoil Overseas Inc, The Peter Kirk (No. 2)  1 Lloyd’s Rep 158).
The arbitral tribunal can order the provision of further particulars in the statement of claim or statement of defence (section 21(3)(c)). Further particulars aim to fully inform the other party of the case it has to meet. Each party must have a full understanding of the other party's case. Each party is also entitled to know all of the facts and matters relied on by the other party. In this aspect, arbitration is similar to court litigation. However, the rules of evidence applicable in litigation do not apply to an arbitration proceeding unless agreed by the parties.
The 2005 Act is silent on this matter. Rule 10 of the Arbitration Rules of the KLRCA states that unless the parties agree otherwise, the parties must keep confidential all matters relating to the arbitration proceedings. Confidentiality extends to the award, except where disclosure is necessary for the purposes of implementation and enforcement.
Courts and arbitration
No court can intervene in any of the matters governed by the 2005 Act (section 8). Therefore, court intervention is minimal. However, the court may offer its assistance in matters such as security for costs, discovery, preservation of property and interim injunctions (section 11). The High Court can also be requested to determine preliminary points of law where the parties have agreed to the application of Part III of the 2005 Act (section 41).
In addition, the High Court can provide assistance in taking evidence by securing the attendance of witnesses to give evidence before the arbitral tribunal on oath or affirmation (subpoena and testificandum) or the production of documents (subpoena duces tecum) (section 29).
Only the parties, with the approval of the arbitral tribunal, are permitted to make an application directly to the court for assistance.
Section 8 of the 2005 Act clearly states that unless otherwise provided, no court will intervene in any of the matters governed by the 2005 Act. This section should put an end to any argument as to the existence of a sweeping inherent power of the court to take over or intervene in arbitrations even if not authorised under the 2005 Act.
After the coming into force of the 2005 Act, there is less risk of a local court intervening to frustrate the arbitration. Section 10 makes it mandatory for the court to stay legal proceedings if a matter which is brought before it is the subject of an arbitration agreement, provided that it is a bona fide dispute between the parties.
The Malaysian courts have accepted that under the 2005 Act that "there is unmistakeable intention of the legislature that the court should lean towards arbitration proceedings" (CMS Energy Sdn Bhd v Poson Corporation  1 LNS).
However, even if a court proceeding is brought, arbitral proceedings can be commenced or continued and an award made while the issue is still pending in court (section 10(1)). This section ensures the continuity of the arbitration proceedings and avoids the arbitral proceedings being protracted.
An application can be made at the High Court for a stay of proceedings (section 10). See Question 18.
If there is a valid court jurisdiction clause, the party can apply for a court injunction to stop the other party from commencing the arbitration.
There are no known authorities in Malaysia where an anti-suit injunction has been granted. The general principle is that the local courts have the power and jurisdiction to grant an anti-suit injunction whenever the interests of justice demand it. In a recent case a local court has laid out five elements to be considered when granting an anti-suit injunction (John Reginald Stott Kirkham v Trane US Inc  SGCA 32):
Whether the respondent is amenable to the jurisdiction of the Singapore court.
The natural forum for the resolution of the dispute.
Any alleged vexation or oppression to the claimant if the foreign proceedings are allowed to continue.
Any alleged injustice to the respondent.
Whether the forum of foreign proceedings is in breach of any agreement between the parties.
It is hoped that this authority will prove to be a persuasive guide for the local courts in the approach to take when considering an application for an anti-suit injunction.
The party denying that the tribunal has jurisdiction to determine the dispute(s) must raise a plea and challenge the arbitrator's jurisdiction. This can either be a partial or total challenge:
A partial challenge arises when it is submitted that certain of the claims or counterclaims do not fall within the jurisdiction of the arbitrator.
A total challenge occurs when it is contended that the arbitrator has no jurisdiction to determine any of the claims or counterclaims which have been submitted to it.
There are two different time limits for raising the pleas (sections 18(3) and (5)):
A total challenge plea must be raised no later than the submission of the statement of defence.
A partial challenge plea must be raised as soon as the matters that fall outside the tribunal's jurisdiction are dealt with.
The doctrine of kompetenz-kompetenz is recognised, that is, the arbitrators can decide on their jurisdiction without support from the court (section 18(1)). Where the arbitral tribunal makes a ruling on its jurisdiction, any party can, within 30 days after receiving the notice of that ruling, appeal to the High Court to decide the matter (section 18(8)). While an appeal is pending, the arbitral tribunal can continue the arbitral proceedings and make an award (section 18(9)). Once the appeal is heard and the High Court comes to a decision, there can be no further appeal against the decision of the High Court (section 18(10)). The High Court cannot make a decision on the tribunal's jurisdiction unless an arbitral tribunal has made a ruling on its jurisdiction first.
Security for costs?
Security or other interim measures?
The arbitral tribunal can order interim measures that it deems necessary (section 19). A party can apply to the arbitral tribunal to make an order for security for costs (section 19(1)(a)).
In addition, an arbitral tribunal can make an order for:
The discovery of documents and interrogatories.
The giving of evidence by affidavit.
The preservation, interim custody or sale of any property which forms the subject matter of the dispute.
An arbitral tribunal does not need the assistance of a court to make these orders.
Technically, there is no right of appeal against an arbitral award. However, the following principles must be considered.
An arbitral award can be set aside on various grounds by an application to the High Court (section 37(1)). The following grounds can be invoked (the onus of proof is on the party making the application):
Any incapacity of a party to the arbitration agreement.
The invalidity of the arbitration agreement.
A defect relating to the issue of notice of the appointment of arbitrator or of the arbitral proceedings.
The arbitration award deals with matters not within the terms of the arbitration agreement.
The procedural rules agreed by the parties violate the mandatory provisions of the 2005 Act.
The High Court can set aside an arbitration award ex officio if either (section 37(1)(b)):
The subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia.
The award conflicts with the public policy of Malaysia. Awards induced or affected by fraud or corruption and awards made in breach of the rules of natural justice are deemed to be contrary to public policy.
In addition, a party can refer to the High Court any question of law arising out of an award (section 42(1)). Section 42 employs the term "reference" instead of "appeal", although judging from the remedies available under section 42, it effectively provides for an appeal. Complaints of procedural unfairness should be brought under section 37 rather than section 42. Any decision made by the High Court under section 42 can be appealed to the Court of Appeal (section 43).
Sections 42 and 43 are found in Part III of the 2005 Act and therefore they only apply to international arbitration if the parties agree on this.
Fees are not fixed by law and are regulated by the procedural rules chosen by the parties. For example, if the parties incorporate the KLRCA Rules, there is a schedule of fees for both domestic and international arbitration. The fees vary in accordance with the amount in dispute. This is in addition to rental fees if the parties use the KLRCA premises for the arbitration proceedings.
Unless otherwise agreed by the parties, an award of costs and expenses is at the discretion of the arbitral tribunal (section 44(1)). The tribunal may direct who is to pay all or part of the costs, expenses, and legal fees.
It has long been established that in exercising its discretion in the award of costs, the tribunal must act fairly and must apply the same principles as to costs as are applied in the High Court. The normal rule is that the award of costs follows the event so that the successful party is awarded his costs, and if the tribunal is to depart from this rule, it should clearly set out its reasons for doing so.
Where a tribunal refuses to deliver its award before the payment of its fees, the High Court may order the tribunal to deliver the award on such conditions as it considers fit (section 44(4)).
On application in writing to the High Court, an award made in Malaysia is recognised as binding and enforceable by an entry as a judgment or by action (section 38(1)).
The application must be accompanied by:
The duly authenticated original award or a duly certified copy of the award.
The original arbitration agreement or a duly certified copy of it.
Where the award or the agreement is in a language other than the national language or the English language, the applicant must provide a duly certified translation of the award or agreement into English.
An award can be set aside in the High Court (see Question 24). In general, however, and taking into account the local courts' attitude towards arbitration agreements, the parties would face little difficulty in registering and enforcing an arbitral award made in Malaysia as a judgment of the local courts.
Malaysia has ratified the New York Convention. Two of the features under the New York Convention (Article 1(3)), which can be used as conditions for enforcement, reciprocity and the commercial nature of the dispute, are omitted under the 2005 Act. Therefore, foreign arbitral awards can be enforced in Malaysia irrespective of whether reciprocity is afforded to Malaysian awards in the foreign state. Similarly, the non-commercial nature of the dispute that is the subject matter of the award is not a relevant factor.
On an application in writing to the High Court, a foreign arbitration award is recognised as binding and enforced by an entry as a judgment or by action.
The application must be accompanied by:
The duly authenticated original award or a duly certified copy of the award.
The original arbitration agreement or a duly certified copy of it.
Where the award or the agreement above is in a language other than the national language or the English language, the applicant must provide a duly certified translation of the award or agreement into English.
Main arbitration organisations
The Kuala Lumpur Regional Centre for Arbitration (KLRCA)
Main activities. The KLRCA was established to provide a forum for settlement by arbitration of disputes concerning trade, commerce and investment in the Asia-Pacific region.
Malaysian Institute of Architects (Pertubuhan Akitek Malysia) (PAM)
Main activities. PAM was originally established as the Institute of Architects Malaya (IAM) in 1920. PAM was registered with the Registrar of Societies Malaysia on 20 January 1967 under the present constitution.
PAM is the governing body for engineers. It appoints arbitrators when the contract used by the parties is a PAM standard term contract. In addition to arbitration, it administers other forms of ADR.
The Institution of Engineers Malaysia (IEM)
Main activities. The Institution of Engineers Malaysia, better known as the IEM, is a professional learned society serving more than 16,000 members in and outside Malaysia, and the communities in which they work. The IEM was formed in 1959 and was admitted as a member of the Commonwealth Engineers Council in 1962. The Institution is a qualifying body for professional engineers in Malaysia.
It appoints arbitrators when the contract used by the parties is an IEM standard term contract. In addition to arbitration, it administers other forms of alternative dispute resolution (ADR).
The Chartered Institute of Arbitrators (CIArb)
Main activities. The CIArb is a not-for-profit, UK registered charity working in the public interest through an international network of more than 30 branches and chapters.
The CIArb provides a wide range of services and support to members and others involved in dispute resolution, and offers the only globally recognised professional qualification.
The Malaysian Institute of Arbitrators (MIArb)
Main activities. The MIArb is a national body which was established in 1991 and comprises 12 council members. It is a not-for-profit organisation and each council member works and serves on a voluntary basis.
Ashok Kumar Mahadev Ranai
Qualified. Advocate and solicitor of the High Court of Malaya; Barrister-at-law, Gray's Inn; Fellow of the Chartered Institute of Arbitrators, FCIArb
Areas of practice. Arbitration and alternative dispute resolution; bankruptcy/insolvency; construction and engineering; contracts; sale of goods, oil and gas, corporate and commercial disputes; administrative law and negligence; professional liability; land acquisition.
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- Sub-contract for the underpass works on Jalan Tun Razak and Jalan Ampang.
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- Construction of Petrosa Oil Storage and Distribution Depot Project at Sapangar Bay, Sabah.